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November 5, 2013

Krawcheck, Blayney: Top Financial Mistakes Women Keep Making

Sallie Krawcheck and CFP Board’s Eleanor Blayney say women fail to take enough risk in their investments and careers

Sallie Krawcheck speaking at an 85 Broads gathering.

Women aren’t taking enough risk with their investments or their careers, say two prominent women in financial services.

Sallie Krawcheck, the former head of Merrill Lynch and Smith Barney who now heads the global women’s professional network 85 Broads, included women’s resistance to investment risk in her list posted Tuesday of the top 10 financial mistakes women make.

Krawcheck listed women’s aversion toinvesting risk at No. 7, noting that while it may sound “counterintuitive” for women to gamble since they tend to live longer than men and retire with less in savings, women still “need to push themselves” to take “somewhat greater (but still prudent)”risks to get a higher return.

But Eleanor Blaney, consumer advocate for the CFP Board, told ThinkAdvisor that women’s risk aversion is actually “the most common, as well as the most detrimental” financial mistake that she’s seen women make.

While women fail to take enough risk with their investments, they also do not take enough risk in their careers, Blayney says, “which is one reason why nine to five jobs, such as you find in teaching, health services and government are still populated primarily by women, whereas more entrepreneurial professions are still dominated by men.”

Krawcheck agrees that an advisor will usually be a “him.”

Indeed, women “represent only a quarter of CFPs, and this number has not changed much in quite a long time,” Blayney says. “We hear from many women that they can’t enter a field such as financial planning where compensation often reflects the planner’s efforts to build a practice and clientele, because they need the assurance of a relatively high base level of compensation immediately.”

In other words, Blayney continues, women “cannot take the risk of variability in their compensation, particularly in the beginning.” Another crucial mistake that women make is not “asking for the starting salaries that men ask for, regardless of the profession — a mistake which follows them often for the rest of their careers, as that initial gap between starting salaries, as well as associated benefits, compounds over time.”

Krawcheck noted in her top ten mistakes list that women need to “look at the right numbers” when making the “keep working/stay at home decision” based on today’s salary.

“How often do you hear this: ‘If I leave the workforce, I’ll be giving up $x in salary, which barely covers the babysitter’s cost’?" she writes. "Once we women step out of the workforce, we average 84% of our prior compensation if we return after one year and just 50% (!) after three years."

Following are four other mistakes that Krawcheck says women make when it comes to finances:

Letting your husband or partner manage the money without your involvement.Very 1968… and not in the cool, mod way. Few of us think we’ll get divorced or that tragedy will strike, but look around. It does. You don’t want to be learning about your financial situation while you’re in shock.

Using your husband’s financial advisor, even if you don’t really like him/know him/can’t stand him. (And he is usually a “him.”) Here’s a test: at your next joint meeting, how much does the advisor engage you / speak to you / look at you? If “he” spends most of his time talking to “him,” find your own.

Not asking for jargon to be explained.Don’t let politeness or not wanting to look dumb get in the way of understanding your finances. Research shows that both men and women are shy of asking for explanations of financial terms; even so, men still invest while women more typically won’t. (I agree: it’s hard to know which is the worse outcome. So please just ask the questions. It’s your right.)

Not buying long-term care insurance. Here’s a shocker: 70% of 65-year-olds will need some form of long-term care. And, again, we’re around for six to eight years longer than he is.